Fun, old-fashioned family Christmas lights have faced up to $65 million in extra tariffs due to GSP expiration. Those high costs are the result of a few factors: 1) regular tariffs on Christmas lights are high (8%); 2) U.S. imports of Christmas lights from the world are at an all-time high; and 3) GSP countries have become the dominant suppliers as companies seek alternatives to Chinese suppliers, which face 33% tariffs (8% regular tariff + 25% Section 301 tariff).

If U.S. policymakers want to see shifts out of China, letting GSP expire is a no good, rotten way to show it. As recently as 2017, China accounted for $399 million out of $472 million (84%) of all U.S. Christmas lights. Since GSP expired on December 30, 2020, American companies have imported over $830 million in Christmas lights from GSP countries. That works out to almost $7 in imports from GSP countries for every $1 from China. But because GSP expired, each shipment of twinkling holiday cheer gets hit with an 8% tax. Bah humbug, indeed.

GSP renewal shouldn’t be hard: Congress isn’t developing a non-chloric, silicon-based kitchen lubricant here. In fact, GSP’s support is so broad and bipartisan that no sitting Member of the House of Representatives voted against GSP renewal when it last came up in 2018. And yet GSP expiration is about to enter year 3 and American companies already have paid well over $2 billion in extra tariffs.

If Members of Congress are looking for any last-minute gift ideas for American companies, renewing GSP is a good one. Short of full renewal, passing the bipartisan H.R. 8906 would refund over $2 billion to companies that have been waiting on Congress to do something – anything – that provides GSP tariff.

You can buy a whole lot of above-ground pools or Jelly-of-the-Month club memberships with that kind of holiday bonus.

Fun, old-fashioned family Christmas lights faced $30+ million in extra tariffs due to GSP expiration. Regular tariffs on Christmas lights are high (8%), and there’s been a huge shift in sourcing from China to GSP countries in the last few years to escape 25% Section 301 tariffs.

In the last 12 months, Christmas lights imports from GSP countries ($395 million) were 6 times higher than from China ($64 million). As shown in the graph, the current sourcing is nearly the opposite of 2017, when China accounted for $399 million out of $472 million (84%) of all U.S. Christmas light imports, compared to just 14% for GSP countries. Yet imports from China dropped precipitously after Section 301 tariffs increased to 25% in May 2019 and GSP countries were to fill the void (aka save the holidays).

Unfortunately, there are no good sourcing options for companies that want to provide affordable strings of Christmas lights (whether 2 or 250 strings). Even though imports from China face 33% tariffs (8% regular + 25% Section 301), American companies have paid considerably more tariffs on imports from GSP countries that should be duty-free than on imports from China and all other countries combined.

It’s not a controversial program: GSP’s support is so broad and bipartisan that no sitting Member of the House of Representatives voted against GSP renewal when it last came up in 2018. And yet GSP expiration is about to enter year 2 and American companies already have paid $1+ billion in extra tariffs.

If any of you [Members of Congress] are looking for any last-minute gift ideas for me, I have one: renew GSP.

The China/Section 301 diversion is real. So far in 2021, GSP imports are up 12% for products where Chinese imports face Section 301 tariffs but down 7% for products where Chinese imports don’t face any new Section 301 tariffs. It is impossible to know how much more GSP imports might be up (or Chinese imports down) if GSP expiration hadn’t forced American companies to pay tariffs for those products too. We wrote about how GSP renewal must be a part of any “China trade” conversation here.

Imports into 38 states (plus Puerto Rico) paid at least $1 million in tariffs due to GSP expiration. The map below shows estimated tariffs paid for products claiming GSP by state.

It is critical that Congress renew GSP – with refunds for tariffs paid – as soon as possible. We strongly encourage GSP importers hurt by expiration to answer our new survey here. As always, no company-specific details will be published without permission.

Any discussion of improving competitiveness through trade – especially as it relates to diversifying supply chains away from China – must include GSP renewal. China is excluded from GSP, and many GSP countries are natural alternative suppliers to China. By eliminating tariffs on China’s competitors, GSP makes them more viable alternatives to low-cost Chinese producers.

There are no two ways about it: loss of GSP makes Chinese producers more competitive. This is especially true for products where Section 301 tariffs on China may lead U.S. companies to seek alternative suppliers given the near-perfect overlap of products included on the Section 301 lists and GSP-eligible lists. And it’s not just about expiration, the dynamic applies to all types of GSP losses.

For example, while Section 301 tariffs covered just 54% of U.S. imports from China from January-September 2021, during the same time period the products on Section 301 lists accounted for:

• 96% of the estimated $763 million in extra tariffs from GSP expiration
• 97% of the estimated $318 million in extra tariffs from individual GSP product exclusions (e.g., competitive need limitations or “CNLs”)
• 90% of the estimated $312 million in extra tariffs due to lost GSP for India

Imposing an extra $150 million per month in tariffs on China’s competitors is a funny strategy for helping American companies move supply chains out of China. Backpacks are a good example of how that strategy has failed. After GSP benefits were extended to backpacks in 2016, GSP imports steadily gained market share. The Section 301 tariffs supercharged the trend – with gains now directly at the expense of China – but GSP expiration at the end of 2020 stopped both GSP imports’ rise and Chinese imports’ fall.

“GSP” and “China” issues don’t exist in a vacuum and therefore shouldn’t be treated as such. Here’s what should be done:

1. Congress should renew GSP as soon as possible. GSP expiration cost American companies at least $763 million in extra tariffs through September, and they’re likely to top $1 billion in 2021 if not renewed this year.
   
2. As part of renewal, Congress should amend GSP rules (e.g., CNLs) to keep as much trade under the program as possible. The more tariff benefits to GSP countries, the greater the incentives to leave China (and comply with eligibility criteria, as discussed here).
   
3. The Administration should make restoring GSP for countries such as India a priority. In November, 75 House Members sent a letter supporting just that, and a U.S.-India joint statement said the U.S. would consider restored GSP. Talks should move as quickly as possible.

While GSP normally helps lower average tariffs on many of these products, the current expiration means tariffs in 2021 are now even higher!

Take bicycles. The graphic shows average tariffs of 15% in 2020, but the average tariff paid in the first half of 2021 is over 22% – in part to millions of dollars in new tariffs paid on bicycles from Cambodia because of GSP expiration. In response to the Coalition for GSP’s ongoing survey, bicycle company SPECIALIZED reported raising prices to U.S. consumers because of the extra tariffs. About 75% of survey respondents similarly report raising prices to cover tariff costs.

Or gym bags. The graphic shows average tariffs of 23.5% in 2020, but the average tariff paid in the first half of 2021 is more like 28%. GSP expiration has led to tens of millions of dollars in extra tariffs on duffel bags that weren’t assessed in 2020. Many of these products left China for GSP countries to avoid high tariffs, but then faced higher tariffs due to GSP expiration anyways.

Musical instruments. Rulers. Phone cases. Backpacks. Sports equipment. Colored pencils. Pens. Water bottles. All of those products (and many others) now face extra tariffs in 2021 because Congress let GSP expire on December 31, 2020.

Congress should renew GSP immediately so companies can stop raising prices on necessary items such as back-to-school supplies. If you’re a company impacted by GSP expiration, please answer our impact survey here. No company-specific details will be published without explicit permission.

The “temporary” GSP lapse could lead to permanent closure for Bueno of California, which already has paid over $800,000 in extra tariffs due to GSP expiration. That is a massive amount for the 20-person company in Fullerton, California, which sells handbags, wallets, and soft carry-all luggage both online and through major retailers in the United States and Canada. For Bueno, new costs have meant declining orders, layoffs, and canceled investments – and possibly worse in the near future.

I might close the company once our lease expires. The US government is not friendly to small business owners.

Bueno of California President Joseph Pagliaro

The feeling that tariffs are unavoidable is particularly strong in (though not limited to) the travel goods industry. Section 301 remedies imposed on China starting in 2018 now raise tariffs on travel goods by up to 45%. Like many others, Bueno found new suppliers in India and Cambodia to avoid these “outrageous” tariffs. Then India’s GSP was terminated in 2019, raising tariffs on those products. Then Congress allowed the entire GSP program to lapse at the end of 2020, raising tariffs on Cambodian too. Not to mention a global pandemic that has reduced demand for travel-related products such as luggage. There are no good options, and Bueno is now buying more from China despite the 45% tariffs.

Reduced orders hurt GSP’s development goals in Cambodia, whose GDP per capita of $1,513 in 2020 was about 42 times smaller than the United States. After years of growth, Cambodia’s GDP per capita declined 8% in 2020, more than three times the 2.6% decline in the United States. Bueno’s contract factories, which employ mostly women, must pass U.S. safety and social compliance audits done by independent audit company. These are “good jobs” at risk for vulnerable populations that desperately need them.

While Congress can renew GSP “retroactively,” decisions such as “close the business instead of renew the lease” are not so easy to undo. Congress must renew GSP before it is too late for all the companies in Bueno of California’s situation.

Note: this example came from a new Coalition survey on expiration impacts. It was published with permission. GSP importers are encouraged to take the survey here – no company-specific details will be published without such permission.

Triad Magnetics manufactures transformers and inductors for American producers of medical equipment, the power grid, renewable energy and transportation systems. It employs 30 workers in California doing design, manufacturing, and distribution. In 2010, Triad Magnetics moved manufacturing of its main product line – about $7 million/year – from China to the Philippines due to GSP benefits. Without GSP, the Philippines is not as competitive.

Triad Magnetics’ history of creating jobs, raising environmental standards, and creating economic opportunities for women is a textbook example of what GSP benefits are meant to promote. As shared by company president Bill Dull:

“When we opened our Philippine factory in 2010 there was a line around the block with applicants. Many Filipinos are forced to work overseas as they can’t find work at home, so moving 1,500 jobs out of China to the Philippines was a very welcome move.

Furthermore, we treat our employees well. We offer transportation, health care, PTO and recreational benefits. The majority of our workers as well as line-leaders, supervisors and management team are women. They are paid equally to men doing the same jobs and are afforded equal advancement opportunities.

Our Philippine factory is ISO14000 which is a family of standards related to environmental management that exists to help organizations (a) minimize how their operations (processes, etc.) negatively affect the environment (i.e. cause adverse changes to air, water, or land); (b) comply with applicable laws, regulations, and other environmentally oriented requirements; and (c) continually improve in the above.“

Perhaps ironically, it is discussions about how to add new provisions on these topics (e.g., environment) that are holding up renewal and undermining this GSP success story.

And expiration impacts are not limited to the Philippines. Triad Magnetics has been forced to delay new hires and investments in California. Its president expressed the feelings of many:

“Working through COVID in a “critical Infrastructure” market has been challenging. The continued delays reinstating GSP simply add to the challenges, stress and frustration that we are already dealing with. Frankly as an ordinary citizen trying to run a business, it’s very hard to understand why it’s taking so long to reinstate GSP knowing that it has bi-partisan support and the last time it was reinstated Congress passed the legislation something like 98% yes to 2% no.” (emphasis added)

GSP expiration is a clear lose-lose outcome (except for some producers in China). Congress must pass a GSP renewal bill ensures companies like Triad Magnetics can create jobs and opportunity in Philippines and the United States. And it must do so as soon as possible to limit the (already significant) damage.

Note: this example came from a new Coalition survey on expiration impacts. It was published with permission. GSP importers are encouraged to take the survey here – no company-specific details will be published without such permission.

It should go without saying: if policymakers want U.S. companies to buy less from China and more from other countries, they shouldn’t also raise tariffs on those other countries. But since imposing Section 301 tariffs on China, that’s exactly what they did by:

1. Ending GSP benefits for major countries (e.g., terminating GSP for India and Turkey in 2019, suspending half of Thailand’s benefits in 2020; result: $800+ million in extra tariffs);
   
2. Ending GSP benefits for major products (some Brazilian chemicals/countertops and Argentine essential oils in 2018, jewelry from Indonesia and plywood from Ecuador in 2020; result: about 1/3 of all “GSP eligible products” are now excluded due to similar decisions), and
   
3. Letting the entire program lapse on December 31 (result: nearly $500 million in extra tariffs in the first half of 2021).

Given those actions, it should be no surprise that companies are abandoning suppliers in GSP countries to buy more from China. It is impossible to make long-term sourcing plans based on GSP when tariff benefits for your country, or product, or the entire program, may lose benefits at any time.

It doesn’t have to be this way. Congress can help U.S. companies shift supply chains by renewing GSP (for a long time) and updating product rules so that GSP countries become more viable alternatives to China. Or it keep tariffs on China’s competitors high by letting GSP remain expired.

GSP benefits have become even more important in recent years since Altus Brands completely stopped buying this product from China due to 25% Section 301 tariffs. In 2020, GSP saved Altus Brands over $25,000 in eliminated tariffs. The company’s imports also further GSP’s development goals: it purchases from a factory that offers benefits and higher pay than other local factories. It’s good for workers in the Philippines and the United States, since the high-quality products command a higher price and help support other Made in the USA product lines.

But GSP expiration threatens all of this. Altus raised prices to cover the $14,000 (and growing) in extra tariffs paid. It has lost sales at home and in export markets (e.g., Canada, Germany, and Russia), which in turn led to reduced purchases from the Philippines.

According to company president Gerand Lemanski, it could get worse yet: “Without renewal of GSP my product is not competitive in the US market and I will have to cease selling this product within a year. That will result in letting one production person go.”

Unfortunately, Congress recently recessed until mid-September. Altus Brands’ experience shows why it must make GSP renewal an immediate priority when it returns.

Note: this example came from a new Coalition survey on expiration impacts. It was published with permission. GSP importers are encouraged to take the survey here – no company-specific details will be published without such permission.

“I have had to switch suppliers, as I can no longer afford to do business with Thailand. Most of the new development went to China and a little to Viet Nam. I am still doing some re-orders with Thailand, but as I discontinue products there is nothing more in the pipeline for them.”

Every day that GSP remains expired is a win for producers in China. Congress should renew GSP immediately and update its rules to help American companies shift sourcing from China to GSP countries – not the other way around.

Note: the quote came from a new Coalition survey on expiration impacts. GSP importers can take the survey here.